LEVY ARREARS AND LITIGATION

Queensland bodies corporate are not finance providers. Bodies corporate have no obligation to offer extended credit when levy arrears arise, nor are they subject to the banking and finance laws related to commercial lenders and credit institutions.

Body corporate committees have an obligation to preserve the financial stability of the scheme, including, but not limited to enforcement of body corporate levy recovery proceedings. The obligation of the Committee is to the scheme, and not individual owners.

The majority of bodies corporate, unfortunately, experience the difficult position of being “held hostage” by a non-financial owner (in other words, an owner who is not servicing levies and contributions as they fall due) who either refuses or is unable to settle body corporate debts. We have identified three broad categories of non-financial owners: 1) Habitual Non-Financial Owners (who have no regard for their obligations, and are subject to frequent recovery actions), 2) Ill-Informed Non-Financial Owners (who believe they can freely negotiate credit arrangements, with penalty free terms or preferential terms, and 3) Truly Non-Financial Owners.

The approach to each category of levy arrears needs to be tailored:

1) The Approach with Habitual Non-Financial Owners: These Owners are known to the Committee. They are troublesome and have little to no regard for their obligations as Owners. They do not update their contact addresses, they refuse to communicate on their levy arrears and attempt to use the legal system to their own benefit. Whilst payment plans may be offered by Owners, they default on their agreed terms. These Owners are the source of the majority of levy recovery litigation and enforcement proceedings;

2) The Approach with Ill-Informed Non-Financial Owners: These Owners may forget or find levies “inconvenient,” or may be under the impression that they can withhold payment of levies pending resolution of any issues they may have with the body corporate (such as building disputes). These Owners require education – and we recommend that our first point of contact is a letter of advice to Owners addressing their basis for levy arrears. Often these Owners advise the Managers and/or Committees and either do not trust the advices provided to them by the Managers and/or Committee, or do not believe the advices. These Owners are also quite frequently the ones who make complaints to the Commissioner that interest charged by the Committee (usually 30% per annum) are “unconscionable” or “illegal” – without understanding that the interest is provided by Legislation and enforceable if duly resolved by the body corporate). Before issuing legal proceedings, we recommend contacting the Owners. Often times, after the Owner has had direct contact with our offices, they offer payment in full or by payment arrangements. For those which cannot be resolved voluntarily, we recommend to proceed to levy recovery litigation and enforcement proceedings;

3) The Approach with Truly Non-Financial Owners: These Owners are the most dangerous to the body corporate. They are not paying their levies because they do not have the resources to do so. We recommend issuing immediate legal proceedings and commence negotiations with any secured parties of the Owner, such as a mortgagee on the title. Expenditures on Truly Non-Financial Owners need to be made with strategic principles at each stage, to avoid any losses to the body corporate. Furthermore, whilst we appreciate Committees are often eager to move to an enforcement sale, the fact remains that enforcement sales are failing across Queensland, and they are extremely expensive. We have received referrals from other law firms which have gone through multiple enforcement sales – without success. The problem with enforcement sales is that a body corporate can only sell the property as it stands encumbered – so if the Owner has a mortgage over the property for $200,000, and the property will only sell at auction for $150,000 – clearly, the property will not sell because no buyer will purchase a property that has more debt than value (even if the buyer could buy the property from the body corporate for $1.00). Despite this difficulty, we have lateral solutions which are recovering outstanding levy arrears and body corporate debts efficiently and successfully.

Our Appeal in the matter of 399 Woolcock has been successful; as the Appeal findings have overturned the Queensland Body Corporate Adjudicator’s finding that a judgment debt for body corporate levies was not enforceable against subsequent owners. As a result of our success in the Appeal, we now confidently recommend enforcement proceedings against a Non-Financial Owner, without risk that the proceedings will clear the debt for future owners of the Lot. However, despite our success, the commercial impracticality of aggressive enforcement sale procedures remains – and our position remains strong in dealing a two stroke process in dealing with Non-Financial Owners, and their mortgagees to facilitate expedited settlement of body corporate arrears.

Our Lawyers represent bodies corporate across the Queensland Eastern Coast, from Port Douglas to Coolangatta. Because we handle high volumes of levy arrears and recovery matters, we can establish strategic plans to suit any body corporate, including cost estimates which are based on court scale fees. We welcome you to refer to our Levy Recovery, Litigation and Body Corporate Articles on our Articles Page.
We welcome you to contact our offices to have a no-obligation consultation regarding your levy recovery matters. Please contact us on (07) 5574 3560 or email info@nautiluslaw.com.au to arrange a no-obligation, no cost consultation.